
Demystifying value transfer: A critical consideration in the transition away from LIBOR
Learn about the concept of value transfer and how Invesco is addressing this issue as we prepare for the challenges of LIBOR transition.
While the first cessation milestone of the London Interbank Offered Rate (“LIBOR”) transition has passed (occurring on December 31, 2021 for GBP, CHF, EUR, and JPY LIBOR, as well as 1-week and 2-month tenors of USD LIBOR), there is a significant amount of work that remains, both addressing the remaining effects of the December 31, 2021 cessation and preparing for the cessation of the remaining tenors of USD LIBOR on June 30, 2023.
Wait… publication of GBP, CHF, EUR, and JPY LIBOR has ceased, how can there be additional work?
Beyond the December 31, 2021 cessation milestone, significant preparation for USD LIBOR cessation on June 30, 2023 is required due to the significant industry-wide use of the outgoing rate. Because of this, applying lessons learned from the first LIBOR cessation milestone for non-USD currencies will be critical in successfully transitioning away from USD LIBOR. Below are a few of the key areas of focus in preparing for the USD LIBOR transition:
On December 16, 2022, the Board of Governors of the Federal Reserve System issued the final rules for implementing the LIBOR Act. The final rule establishes benchmark replacements for contracts governed by U.S. law that reference certain tenors of U.S. dollar LIBOR (the overnight and one-, three-, six-, and 12-month tenors) and that do not have terms that provide for the use of a clearly defined and practicable replacement benchmark rate following the first London banking day after June 30, 2023. The final rules also specify what type of contracts are covered under the LIBOR Act.
The types of contracts covered under the LIBOR Act include:
The board-selected benchmark replacement rates differ based on the type of contract. For each contract type, the type of SOFR and spread adjustment selected by the board are as follows:
While a lot of the hard work has been done across the financial services industry in preparing for the initial LIBOR cessation date of December 31, 2021, it is clear that there is still much to be done before we can live in a world without LIBOR. There is significant global exposure to USD LIBOR that needs to transition and, as we have discovered so far, it is not as simple as replacing a lightbulb. Preparing for LIBOR cessation has in many ways been like re-wiring the house without turning the electricity off. We have learned a tremendous amount since the December 31, 2021, cessation and as we enter the final stretch, we are now much better place to see off LIBOR.
Invesco continues to actively monitor the industry wide move away from LIBOR, including guidance from working groups and regulators, in informing the transition plan. The LIBOR transition has been a multi-year effort and Invesco will continue to work on supporting clients through this monumental journey.
Below is a table that shows the status of cessation of various forms of LIBOR and IBOR. For further information on Invesco’s efforts to address the LIBOR transition, please visit the frequently asked question section of the website (link) or reach out to your client relationship manager for more information.
Rate |
Cessation Date |
GBP LIBOR* |
December 31, 2021 |
CHF LIBOR |
|
JPY LIBOR* |
|
EUR LIBOR |
|
USD LIBOR (1w and 2m tenors) |
|
EONIA (Euro Overnight Index Average) |
January 3, 2022 |
COFI (Cost of Funds Index) |
January 31, 2022 |
SIBOR (Singapore Interbank Offered Rate, 6m tenor) |
March 31, 2022 |
USD LIBOR (Overnight, 1m, 3m, 6m, 12m tenors) |
June 30, 2023 |
SOR (Singapore Swap Offered Rate) |
June 30, 2023 |
SIBOR (Singapore Interbank Offered Rate, 6m tenor) |
March 31, 2022 |
Euro Yen TIBOR (Tokyo Interbank Offered Rate) |
December 31, 2024 |
EURIBOR |
Undefined (note this rate has been reformed) |
CDOR (Canadian Dollar Offered Rate) |
June 30, 2024 (currently under consultation to confirm) |
*Note that synthetic versions of GBP and JPY LIBOR are available for use in tough legacy contracts for 2022.
Disclaimer: Throughout our site you will find links to external websites. Although we make every effort to ensure these links are accurate, up to date and relevant, these links are being provided as a convenience and for information purposes only. Please note that Invesco takes no responsibility for the accuracy, legality or the content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.
The information and any opinions expressed in this document are derived from proprietary and non-proprietary sources deemed by Invesco to be reliable, but are not necessarily all-inclusive and reflect Invesco’s current understanding of the expected changes as of May 9, 2022. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions or actions taken in reliance thereon is accepted by Invesco, its officers, employees or agents. Clients should contact their professional advisors on the possible implications of the changes such as financial, legal, accountancy or tax consequences.
Demystifying value transfer: A critical consideration in the transition away from LIBOR
Learn about the concept of value transfer and how Invesco is addressing this issue as we prepare for the challenges of LIBOR transition.
IBA Consultation: What you need to know
Read key information from the IBA consultation, which describes its intention to cease publication of the one-week and two-month US dollar LIBOR settings.
Understanding the importance of ISDA 2020 IBOR Fallbacks Protocol
Understand the importance of the ISDA Interbank Offered Rate (IBOR) Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol.
Understanding LIBOR cessation impacts: Performance benchmark exposure
Understand how moving away from London Interbank Offered Rate (LIBOR) to alternative reference rates impacts performance benchmark exposure.
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Credit: Simone Wave/ Stocksy
Disclaimer: Throughout our site, you will find links to external websites. Although we make every effort to ensure these links are accurate, up to date, and relevant, these links are being provided as a convenience and for information purposes only. Please note that Invesco takes no responsibility for the accuracy, legality, or content of the external site, or for that of subsequent links. Contact the external site for answers to questions regarding its content.
The information and any opinions expressed in this document are derived from proprietary and non-proprietary sources deemed by Invesco to be reliable, but are not necessarily all-inclusive and reflect Invesco’s current understanding of the expected changes as of January 13, 2022. As such, no warranty of accuracy or reliability is given, and no responsibility arising in any other way for errors and omissions or actions taken in reliance thereon is accepted by Invesco, its officers, employees, or agents. Clients should contact their professional advisors on the possible implications of the changes such as financial, legal, accountancy, or tax consequences.